Buy the Dip, Sell the Rip

April 18, 2023 • Estimated Reading Time: 5 minutes

Macro Markets

Annual inflation moderated across US regions last month. The figures are similar to March 2022, when energy prices spiked immediately after Russia’s invasion of Ukraine. Consumer prices rose at the slowest pace in New England and the Midwest, with a 3.6% gain from the previous year. Mountain states in the West — an area that includes Arizona and Colorado — saw the highest inflation of all regions, at 6%. Headline inflation is showing signs of slowing down although core inflation is still sticky.

The Bank of America had their global fund manager survey, which showed a lot of great insight into what investors worldwide are thinking. The investors’ allocation to equities, relative to bonds has dropped to its lowest level since the global financial crisis as worries about a recession take hold.

The above chart could be seen as a contrarian indicator to risk assets as well. We could see a potential double-bottom scenario ahead due to fear. Investors indicated that fear of a credit crunch had driven up bond allocation to a net 10% overweight — the highest since March 2009. A net 63% of participants now expect a weaker economy, the most pessimistic reading since December 2022. The rally, however, has been moderated this month. Data show a softening in the labor market, raising worries that the economy could contract later this year.

In April, the “most crowded” trades deemed by global managers were long extensive tech stocks (30%), short US banks (18%), long China equities (13%), short REITs (12%), long European equities (11%) and long US dollar (5%), Hartnett wrote in the global fund manager survey Tuesday.

What’s more, managers are the most overweight defensive stocks versus cyclical since US equities bottomed in October. The tailwinds to the risk market are major credit events paired with a global recession and the Fed stays hawkish on the back of higher inflation prints. Geopolitical risk is also a concern at the moment. Overall the market and market participants have been sitting towards the one extreme of the market over the last two years. We would need inflation to keep pressing down and a dovish Fed to see the next big leg up. The bear market rally catalyst was the January payrolls number. Since then, inflation has reversed its trend slightly with core inflation edging higher. For any strong move up in macro and for inflation to move down, we would need to see unemployment move up significantly or inflation pressure down much more.

Become a member today and read the complete newsletter…

Have a friend? Share the Weekly Wizdom Newsletter and win exciting perks and rewards but most importantly you’ll make your friend smarter, Kudos to you!

Disclaimer Wizard of Soho LLC and Weekly Wizdom publish financial information based on research and opinion. We are not investment advisors, and we do not provide personalized, individualized, or tailored investment advice, nor do we provide legal advice or information. The publisher does not guarantee the accuracy of the information provided on this page. All statements and expressions present are based on the author's or paid advertiser's opinion and research. No opinion, directly or indirectly, is an offer or solicitation to buy or sell the securities or financial instruments mentioned. As news is ever-changing, the opinions included should not be taken as specific advice on the merits of any investment decision. Investors should pursue their own investigation and review of publicly available information to make decisions regarding the prospects of any company discussed. Any projections, market outlooks, or estimates herein are forward-looking and inherently unreliable. They are based on assumptions and should not be construed to be indicative of actual events that will occur. Contrarily, other events that were not considered may occur and significantly affect the returns or performance of the securities discussed herein. The information provided is based on matters as they exist on the date of preparation and do not consider future dates. As a result, the publisher undertakes no obligation to correct, update, or revise the material in this document or provide any additional information. The publisher, its affiliates, and clients may currently or foreseeably have long or short positions in the securities of the companies mentioned herein. They may therefore profit from fluctuations in the trading price of the securities. There is, however, no guarantee that such persons will maintain these positions. Unauthorized reproduction of this newsletter or its contents by photocopy, facsimile, or any other means is illegal and punishable. Neither the publisher nor its affiliates accept any liability for any direct or consequential loss arising from any use of the information contained herein. By using the site, or any affiliated social media account, you are giving your consent and agreeing to this disclaimer and our terms of use.